Ep. 165 Why Did a Booming Economy Hit a Snag? (You’ll Never Guess Krugman’s Answer….)

19 November 2018     |     Tom Woods     |     3

Brazil’s economy was booming and everything looked great, and then it suffered a severe slump. What the heck happened? Well, whether or not you’re interested in Brazil you’ll be interested in Krugman’s attempted answers and our replies. (You’ll also be shocked to learn that Krugman has quietly changed his position on Brazil, hoping no one would notice. No such luck, Paul.)

Krugman Column

What the Hell Happened to Brazil? (Wonkish)” (November 9, 2018)

Contra Column

Paul Krugman says Brazil’s economic crisis is ‘manageable’,” by Jill Langlois

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Contra Krugman: Smashing the Errors of America’s Most Famous Keynesian

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  • Mateusz Benedyk

    https://uploads.disquscdn.com/images/e6ebfed58cf5a2d4f592172a46abe580b66ca604c7364b67a313b67ea880f7e2.jpg The government expenditures in Brazil did rose sharply in nominal terms during the crisis. According to IMF database expenditures did rise by 13,1% in 2014 and 17,2% in 2015. Then the government expenditures were almost frozen (1,3% rise in 2016 and 2,8% rise in 2017) and the economy did come out of recession. Krugman did use the most misleading metric counting only government final expenditures excluding transfers which did rise faster and correcting them by price changes – as if problems were not nominal as Keynesians would like to believe.

    • Danan

      Using real quantities over nominal ones is something you can make an argument for, but excluding transfers is just absurd… How dishonest can a man be?

  • JP Bochi

    Brazilian here. I think you guys missed one pretty important historical events around the crisis. I’m not saying that they explain the crisis, but they do provide some context. I’ll give my layman’s explanation.

    In 2014, we had elections for president. Dilma got elected. Soon after the election, it was uncovered that the federal government was doing some extreme accounting maneuvers (called “fiscal pedalling”). In order to get reelected, they sold the story that all was well with the budget. After the election, reality struck. State controlled banks had to just pay the bill. These criminal activity eventually caused her impeachment to happen in early 2016. One effect of these maneuvers was a sharp loss of confidence in the markets.

    Starting in early 2015, electricity prices started to rise _considerably_, going in the opposite direction of the global price of oil. In Brazil, electricity production is heavily controlled by government, and one company (Petrobrás) has a monopoly over oil. Somehow, the price of fuel there didn’t go down. On top of lower exports of commodities, the industry was suffering with higher operational costs.

    In 2016, after the impeachment, the new government not only tighten up spending, they made some moderate reforms to labor laws. Anyone doing business in Brazil will tell you how draconian our labor laws are. Americans have no idea. Every company, especially small ones, are terrified of being sued by former employees. Loosening up those laws, even if in a timid way, must be a boon to business.